STARBUCKS CASE STUDY

Do you know that there are 32000 outlets of Starbucks in the world? And the annual revenue of the company is 2 Lac Crores. But the advertising expenditure of the company is almost zero. Now the question is how does this company reached this level? Starbucks does not make the best coffee in the world moreover their coffee is quite expensive. And they don't advertise either. Still how Starbucks is so successful? 

It goes back to 1971 when the company's first outlet was established in Seattle. Three friends together started this. In 1982 Howard Schultz entered into this venture. And when he joined this company he used to handle retailer marketing work. And at that time Starbucks was selling only and only coffee beans. But in 1983 Howard Schultz went to Italy. When he reached Italy he saw that there is a rich culture of Espresso. And there are Espresso bars everywhere, in which Cafe Latte is served. So he had an idea that why not take this culture to America? And why not start our own coffee house? When he proposed this idea to his partners and other people, they refused. After that he started his own coffee house. He ran that for few years. And in the year 1987 he acquired all the 17 outlets of Starbucks with the help of investors. He also renamed Starbucks as Starbucks Corporation. Their first strategy is Aroma Bait and Perfect Cup. Well how does this work? Once I was sitting in a theater hall and watching a movie. Alongside me was a couple who were having fun after sometime they ordered food. He had ordered a Pizza, when it was served, as he opened the Pizza box I strongly had a feeling of hunger. Because of its smell it was so strong that I was instantly hungry. Same concept is used by Starbucks with you. If you go nearby any Starbucks outlet or you just enter the outlet then you will get strong coffee smell that you feel like visiting the outlet, entering inside. Once you enter inside you are stimulated by the aroma and invited inside with the bait after that the customers are offered Perfect Cup. Well how does it work? See, they ensure three points in the perfect cup first is quality, you are served a quality product. Second is you are given a very nice soothing Experience. Very relaxing atmosphere is provided. You go to any outlet of the Starbucks you will have relaxing and feel good type of experience. The ambience over there is very great. And the third thing that is offered to you is customer delight. If you go to Starbucks and even if you don't order anything then the Starbucks staff will never treat you like you are totally useless for them. They will treat you like normal customers even if you do not order anything. With the coffee aroma you are invited with the bait and once you enter then you are given such a nice experience that you will feel like visiting again and again. And this is their strategy. Their next strategy is Bean to Cup. Starbucks is designed with forward integration. Initially they sold only coffee beans and later on they entered into Coffee house business. They observed that how they can provide an entire experience to their customer right from coffee beans to the Cup? So what they did? They collaborated with Microsoft. And with them they used the Block Chain Technology to develop Supply Chain Tracking Systems. What was happening due to that? The customers used to see everything on their phones like what is the exact origin of the beans added to their coffee? Which farmers have supplied it to them? And which are the processes it has undergone and how it has been converted from coffee beans into such a nice coffee that customer is having. So basically they have directly connected their customers with the farmers with the help of this system. What happened because of this? The customer would get more loyal with the brand, was able to connect properly and was able to engage with the brand. Also the farmers never had the information as to where does their sold coffee beans go? And farmers are happy as well because the farmers are able to know that who is the consumer of the coffee beans that they have sold. What is made out of it? And ultimately what is the review of those customers who are consuming the coffee made with my beans? So the farmers were very happy too. Now why did they use the blockchain technology? Because the Blockchain Technology is completely safe. You can't do any alteration to it. So the things that customer can see can not be manipulated in any manner. The Blockchain Technology is so powerful that it is not just used by Starbucks but it is going to transform many industries. May it be food, FMCG, jewelry or Pharma, in all these industries the Blockchain Technology will do massive revolution. It is going to transform all these industries. Have you seen termites? It is called Deemak in Hindi. The termite has powerful strategy that they suddenly spread. The same thing is done by Starbucks. Well how does Starbucks do that? Starbucks do it with Termite Expansion. How? See Starbucks follows this and they know that if they expand suddenly it will be problematic. So for expansion they initially establish their base just like the termite makes its own base. what does Starbucks do? First of all the area in which they have to dominate, over there they select a central location and open a hub. After opening their hub they ensure that the hub has enough power and capacity that in the next two years it can serve upto 20 outlets. Starbucks takes a lot of time and builds this hub in a proper way. And after that Starbucks starts with expansion. Now the Starbucks does not allot franchisee. Why? Because Starbucks never compromise on two aspects First is their quality if the quality is poor then they will lose customers. And second is their cost, even if their cost increases slightly then their company will not be profitable. And then with a bang Starbucks keep on opening their stores in that area for two years. Minimum 20 stores in 2 years. Now all the raw material will be supplied to all the stores by the hub that was set up. Many factors are controlled because of this. First their inventory cost reduces because now they don't have to keep huge inventory. And they know everything about the requirements at all the locations through the systems. Secondly There is no compromise on quality at all. Standardized output will be delivered. Since the raw material is supplied from the same place and each outlet is receiving the same raw material, the inventory is always up to date. And their wastage is very much in control. Why? Because see the inventory is managed very well by these people, as all the raw material is supplied by hub and the wastage reduced because now they know that they have just these 20 outlets to serve. So the hub receives only that much amount of raw material that is required by these outlets. And all these things are managed through digital systems. Starbucks really hates two things bad experience and dissatisfied customers. These two things are not accepted by Starbucks. And to compensate this the starbucks provide free coupons for drinks to their customers. They say to them that take these coupons and when you visit the store next time you will get a free drink. The Starbucks is benefited a lot by this. Firstly it increases the brand advocacy. People spread this with others that brother I got a free coupons from Starbucks. I will get the free drinks. Secondly Loyalty, means the customers to whom the coupons are given, their loyalty towards Starbucks has increased. Because to compensate for their dissatisfaction, Starbucks has taken the initiative. They are not just asked for the feedback no, they have taken initiative and compensated in a proper way. And the third Sales. Since they are given the free coupons then when you come for the next time you will get a free drink, only when you puchase something from the Starbucks. So the Starbucks is securing the next sell with this coupon. Their next strategy is power pillars. What is this? See every company have three types of products. And all these three products acts as the pillars of the company which gives power to the company. So here, what is the first pillar of the Starbucks? Tangible Product. Every company has a tangible product. What is the tangible product for Starbucks? Their coffee. Apart from that they have other soft drinks and food that they serve, all these comes under their tangible products. If there is anything wrong with this then the customer will leave you. Your second product is Core Product. Core product is not their coffee. Actually it is their service. The atmosphere that they have built in their outlets. Apart from that their decoration, how decorated are their outlets? Also Starbucks provides you free Wi-Fi. All these things when combined forms the core product. If your tangible product is your core product then your company will not grow much. Your core products should have more aspects than your tangible products. Third one is Augmented product. Every company have Augmented product as well. Actually Augmented means intangible, you can't touch it. You can only feel it. You can see it somehow or other. The customer interaction that Starbucks have the way their employees interact with their customers all these factors are a part of their augmented product. When augmented product, core product and Tangible product are combined then the company has the power. Therefore the customers of Starbucks are very much loyal with the brand. Because Starbucks have built strong power pillars. And they are so strong that any guy who once become customer becomes loyal forever. Their next strategy is from Burn Out to Bang On. How did Starbucks do this? See there are so many brands which have tried and are still trying to beat the Starbucks. Starbucks spends 1% hardly 1% of its total revenue on advertising. And that's where its competitors like Dunkin' Donuts and McDonald's spends 20% of their annual revenue on advertising. Still Starbucks have beaten them, how? Well these brands, Dunkin' Donuts and McDonald's have tried so much to pull it down. So much so that Dunkin's Donut had conducted a campaign called dunkinbeatsstarbucks.com They had launched a website where people used to visit and share their review people used to tell that which coffee is better? Starbucks or Dunkin' Donuts. And because of this campaign 61% people supported Dunkin' Donuts and said that Dunkin' Donuts coffee is much better than Starbucks. And because of this the market share of Starbucks reduced drastically. McDonald's also ran many campaign. Their most famous campaign was 4 bucks dumb campaign. They advertised with big banners and posters like this everywhere. 4 bucks is dumb. Now come to us and have Espresso. All these campaign were run by McDonald's. Because McDonald's believed that Starbucks is too much expensive. All their competitors tried a lot to pull them down. But still how did these people manage to bang on? How did they beat competitors? Starbucks did not give up. Their simple philosophy was no ad, Extreme Value Add They said that see, there is no point in spending on advertising. Better you add value to the customer's life. Add so much value to the customer that he goes out and cries loudly that Starbucks is amazing. Come to Starbucks. And that is what Starbucks did. Starbucks focused on four things. They knew that if they master these four points then customers are theirs only. First is atmosphere. If you look at the Starbucks atmosphere then it is so sexy, so lovely atmosphere that you would want to seat there. Whether you order or not but everyone feels like seating there for sure. Why? Because they maintain very good atmosphere may it be aroma or look and feel or the culture they have built it really well. Second thing is customer service. They know that if we don't provide good customer service then there will be word of mouth but customers will curse Starbucks for that. They will not praise us so there will be no advocacy. Third thing - free Wi-Fi. Starbucks wanted to become third place in people's life. One is their home and another is their office. So Starbucks wanted why not we should make a place for people to hangout where they would come, work as well have small meetings, and should enjoy our coffee too. So the environment of Starbucks is made like that with free Wi-Fi so that people can seat there and work. And people do order coffee. very few stingy people are those who don't order coffee. Fourth and the most important is Personalisation. My name sound sweeter than honey. Every person feels their name is sweeter than honey. And the same is done by Starbucks. There are so many people out there on social media who have their photos with cup and they share it. Why? Because their name is written on it. If their name was not written on it then nobody would have shared. They share because their name is written on it. There is a personal touch to it. Their personal emotion is attached with that coffee. Starbucks do one more thing they write your name wrongly. Many a times it happens that the Starbucks purposefully write your name wrong. Why? Because you interact with their staff. You would go and tell them that they have written your name wrongly, there is a spelling mistake. What happens because of that? When you interact with their staff then you increase your investment towards that brand. You are invested when you interact with that guy. You get connected to that brand. Not just with that guy but you are connecting with the brand. And that is what Starbucks need. That is reason why it has such a great brand value. Do you know how Starbucks provides such a flawless experience to their customers? The secret behind that is Brew the Perfect Cup Strategy. What does these people do is they provide training of 24 hours to all their employees. Within 2-4 weeks the total training time is 24 hours. But what do they teach them? They know one thing that their staff is their main seller. Staff interacts with customers and he is responsible for customer satisfaction. And if the customer is satisfied, is delighted then he will go outside and will discuss about our brand. And people do that as well. So their first training is on coffee history. They tell the complete coffee history to them. Why? There are two reasons first is if suppose some customer asks about it then they should be able to answer that we know it. And the second one is many people like to talk so in the conversation all this knowledge, information is quite helpful, to spice up the conversation. Because of which the experience is boosted and becomes more powerful. The second training  is on Drink Preparation. They are trained on it. On all types of drinks. Third training is on Coffee Knowledge. They are given proper knowledge on coffee, not the history. Which coffee is good which one is bad. If someone asks you what is the specialty of your coffee? Then you should be able to answer it. Because the staff should have well equipped knowledge that they should be able to answer any question by any customer. Fourth training is on customer service. They are taught about how to serve the customers. Even if someone is not having a coffee then how to deal with him. They don't need to kick him out, no! They are trained how to deal with such customers. Apart from this the fifth training that they have is retail strategies. They are trained on retail strategies that how can they increase the sell inside the outlet. They are trained on cost selling, up selling and everything. These people basically follow the principle of 70:20:10. 70% of their training is totally on the job training. That means they are taught with simulations, they will create the situation where they can practice or they can be trained on actual job that how all these things can be done. The remaining 20% is taught by experts, mentors. They train them on how entire work can be done. The rest 10% is through online lectures, through online learning, courses are provided. Starbucks has its own system which provides this all education. So the guy learns remaining 10% from there. If you like this post then share it with friends. Thank you